Basic Income: Thanks, You’re Not Helping

I’d guess that one of the most popular current political ideas among people who think outside the box is the idea of a Basic Income Guarantee. This is, roughly, the idea that everyone should receive a regular lump sum payment unconditionally. There are all sorts of variations, but that’s the general idea: the state pays each person, rich or poor, employed or unemployed, the same amount of money each week, month, or year. What ‘each person’ means here obviously depends on the scale at which the plan is implemented, among other things.

The proposal has its own entry in the Stanford Encyclopedia of Philosophy (or something close to it), there are thousands of organisations devoted entirely to promoting it all over the world (BIEN, UBIE), and here in the UK it’s part of the Green Party manifesto.

Listen to this podcast and you’ll be either amazed or amused at what a Basic Income is supposed to achieve. No more homelessness. Everyone’s basic needs met without them having to work. People free and happy, working for the common good in whatever ways they see fit. Or here’s Philippe Van Parijs claiming that paying €200 to each EU citizen, funded out of a pan-European VAT, can stabilise the Euro.

I’m sceptical about the idea, and I worry that it gets in the way of ideas with a lot more promise, especially the idea of a Job Guarantee. Neil Wilson suggests that the Basic Income people (BIPs) are politically helpful, since their idea makes better ideas look comparatively reasonable. The problem is, however, that BIPs are the same people who would be supporting better ideas if they weren’t distracted by their silver bullet.

So here’s what I think is wrong with the Basic Income idea (Pavlina Tcherneva absolutely nails it – if you’re a BIP please read her paper):

Every sovereign currency issuer needs a price anchor. Otherwise there’s nothing to stop prices rising indefinitely. There isn’t ever perfect competition, and unions and big firms especially are always yanking wages and profits upwards. Also banks have a tendency to overlend and governments have a tendency to overspend. There’s a lot of inflationary pressure built into the system. A price anchor is needed to hold it down.

Once we used gold as a price anchor. The government would build up a buffer stock of gold and promise to sell it at a fixed price. When the prices of other things rose (i.e., the purchasing power of the currency fell), people would buy up the gold. So there’d be less currency left over to chase other goods, and the rise in prices would be checked.

Gold isn’t a very good price anchor. For one thing, it requires lots of labour to dig gold out of the ground and then put it into a vault. Some would say there are better uses of labour.

Anyway, gold has a certain dignity, and it’s not very nice to treat it like that – using it as a mere means instead of respecting it as an end in itself. Much better to use the working class. That’s what we do now. The state (government + central bank) works to maintain a certain rate of unemployment (the NAIRU), using austerity and tight money to prevent the economy from running at full capacity. Thus there is a buffer stock of people looking for work. The state also ensures that their condition is unpleasant, so that many of them would accept even low-paid work to get out of it. When there’s upward pressure on prices, employers can hire out of the buffer stock. The low wages of the workers thus hired hold down prices.

That’s also not a very good price anchor. In practice, employers often don’t want to hire workers out of the unemployed buffer stock, even for a low wage. People who have been unemployed for a long time might not be reliable workers, and employers don’t always want to take the risk.

Also, again, some would say that there are better things for people to do than wait in queues at job centres and be forced to apply for seven jobs a day that don’t exist. A job guarantee would offer them the option of instead doing public works for a living wage. This would anchor prices to the living wage, where they should be, and supply public works. If capital is limited there is still plenty of vital but non-capital-intensive public work to be done: care and companionship for the elderly, maintenance of public parks and recreational facilities, curatorship of public museums and libraries, maintenance work in hospitals and schools, etc. Presumably some people would prefer doing things like this to being smothered daily within a humiliating bureaucracy. The price anchor would then partially consist of people working in the public sector, rather than being entirely a reserve army of the unemployed (part-voluntary part-involuntary).

What do BIPs propose to use as a price anchor? They can’t use unemployment. That requires unemployment to be sufficiently unpleasant that people will always be ready to accept a low wage. Yet one of the main points of Basic Income is to make unemployment more bearable, strengthening the wage-bargaining power of workers in the process (see 1 and 2 on this list). There’s nothing, then, to stop workers negotiating higher wages, firms raising prices in response to maintain profits, and the same happening again – the famous ‘wage-price spiral’. As this goes on, the purchasing power of the Basic Income shrinks to zero. Should the issuers raise the amount? If they don’t, its value gradually erodes and the whole point of the scheme is lost. If they do, there’s no control on inflation.

So, again I ask, what do BIPs plan to use as a price anchor? Tcherneva and Randall Wray call this the Achilles heel of Basic Income. BIPs don’t, to my knowledge, propose using gold, foreign currency reserves, oil, or anything else as an alternative price anchor. They just haven’t thought about it.  If they did, I can’t see what better answer they could give than the job guarantee. The job guarantee is the only thing that could make their proposal socially viable in the long term. [EDIT: Mike Otsuka has pointed out to me that many Basic People are Georgists, who could in principle use a combination of Land Value Tax and guaranteed land purchases by the state at a fixed price as a price anchor. So I retract the claims in this paragraph, though I’m not sure such a scheme would achieve the objectives ascribed to it.]

BIPs need the Job Guarantee as much as anybody else. I wish they would support it, even though this would mean less time to play with their favourite toy idea.

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14 thoughts on “Basic Income: Thanks, You’re Not Helping

  1. NeilW

    The anchor prayed to is the same anchor that you get with the open borders argument. It will ‘naturally’ reach some magic equilibrium by itself. Production will spontaneously arise by the magic of the invisible hand. It’s a hippy argument and has more in keeping with ‘free market’ dogma than anything else. It’s a ‘natural order’ belief system.

    One of the key points about MMT is that is understands that price and value are not necessarily the same. You have to actively keep price in line with what people value via an engineering process. It doesn’t happen by magic. Ensuring that in a bust high earning individuals in failed operations drop back down to the living wage of a Job Guarantee and in a boom spending is withdrawn when people leave the Job Guarantee is how we keep price in line with values.

    The Job Guarantee is about getting things that are valued done for a particular price. The private sector then generates scale efficiencies from that basic value/price relationship which is what gives us different prices and greater output – plus the profit capitalists seek.

    Reply
  2. David J

    Is the problem identified here one of inflation then?

    We add a basic income and greater worker bargaining powers and this means that prices are forced to rise as business looks to maintain its profits. The effect of the UBI therefore basically reduces to zero… A price anchor would thus prevent this kind of effect but, given what UBI hopes to achieve, it seems to be locked into a situation where no price anchor could emerge… Is that about the gist of it?

    see this article for a possible counter to that argument http://coppolacomment.blogspot.co.uk/2013/07/economic-equivalence-job-guarantee-and.html.. My own two cents can be found at the following http://basicincome.org.uk/2014/10/inflation-thoughts/ (corrections and comments welcome). In addition, think of the same anti-inflationary arguments that were brought in during the time of minimum wage and/or credit cards.

    Also, there is a misrepresentation of the open border argument by Neil W – the idea of an equilibrium emerging is not actually any kind of goal for proponents of this idea- Kukathas and Carens argue more from either a) the notion that costs as they currently exist are too huge for too many people and need to be countered by strengthening the liberal right to exit or else 2) a demand that so-called liberal democracies honour the liberal side of that description , i.e. closed borders are when enforced by military and police decidedly un-liberal. New costs will develop in the post-open border scenario – the point is they will be grounded in defensible principles.

    I think my main issue with the Job Guarantee is that it a) flies in the face of gains in technology (see the recent study from Oxford predicting 2030 will see 50% of jobs automated) and b) assumes the labour market is the best place that contribution and value can be measured… I am sure you’re aware of LaFargue / Gorz / Graeber on this issue. It strikes me as an idea that suffers from a paucity of imagination and, ironically, a failure to grasp certain qualitative shifts in the global economy (see Standing for this aspect of the argument).

    Reply
    1. axdouglas Post author

      What I mean is that, JG or no JG, the government has a responsibility to ensure transfer payments to people who can’t work, whether this is because of age or infirmity or because there is literally *nothing* left for them to do. But for the currency in which they’re paid to have any value, the receipt of it by people who *can* do something useful has to be conditional upon their doing that something.

      Reply
    2. axdouglas Post author

      By the way, the Frances Coppola blog you linked continually accuses Wray of claiming that people wouldn’t work if you introduced a BIG. She thinks that claim is what supports his argument that BIG would be inflationary. But he doesn’t claim that. What he claims is that money is worth what you *have to do* to get it, so if you get some of it for doing nothing it loses value. Whether people work or not is irrelevant; the point is that they don’t have to in order to get the money.

      Reply
  3. axdouglas Post author

    Thanks for reading my blog and for your comments.

    I don’t mean that UBI would have to be inflationary; it would depend on what happened with taxation among other things. The point is rather, as Neil says, that on its own it provides no means for the currency issuer to connect price with value at all.

    Since the JG doesn’t force anyone to work I don’t think the arguments about the work-fetish really apply.

    Randall Wray has a list of potential JG jobs here (http://www.economonitor.com/lrwray/2014/01/07/bop-a-mole-2-jg-workers-will-do-nothing-useful-the-jg-program-will-not-be-manageable/). There’s no reason to think that automation is making many of them obsolete (maybe ‘companion for the elderly’, if this comes true: http://www.imdb.com/title/tt1990314/)

    If robots do almost all the work and everybody else lives off UBI, then the currency will only only be worth the effort it takes to collect a UBI payment (presumably none with electronic transfers). At that point I guess you might as well not have currency.

    Reply
  4. NeilW

    There is no misrepresentation at all. Fundamentally the philosophical arguments you appeal to are not shared by the general population and there are actual physical and social limits that are totally ignored. Therefore it is an intellectual dead end.

    Other people will not accept you getting paid for doing nothing *from their point of view not yours* – as they have demonstrated clearly by voting for those philosophies that have degraded and removed unemployment benefit *and* the hidden job guarantee of the wider public sector over the last forty odd years.

    The Job Guarantee has to be explicit and most of its job is showing how people working on it are doing things that are to the value of others in society. It has to continuously do that in the same way an oil pump has to constantly work to stop the engine seizing up.

    As I’ve pointed out in my piece on the political aspects, the desire to see quid pro quo in humans is *innate*. You cannot get around it by simply wishing it away.

    “It is simply a matter that the default Basic Income Job – “spend the money I’m given” – is not seen as sufficient recompense by the rest of society – even when the payment is universal. That makes it a non-starter.”

    http://www.3spoken.co.uk/2014/10/the-political-aspects-of-basic-income.html

    Similarly open borders is a non-starter. You can’t make more land and squishing more and more people into a smaller and smaller space is politically untenable. The correct approach is to bring the source up to scratch, where again a job guarantee helps:

    http://www.3spoken.co.uk/2014/10/how-labour-can-solve-immigration.html

    Ultimately what you do *is and always will be* judged by others, and they are the ones making the stuff you need. You cannot avoid that and you cannot make it go away. It is human – part of who we are as a social species.

    You also need something to fill your day, and not everybody is good at doing that on their own (which is why the military are never short of recruits – some people like to be told what to do). The intersection of something to do with your day, and what others see as quid pro quo is what ‘work’ is. What fits in that space moves over time as society changes and evolves (or devolves).

    Any system design within a human environment has to provide that ‘work’ or it will be torn apart politically *as we have already seen*. That applies however much robots undertake to create output.

    Lack of imagination is not the issue. You have to design the systems pragmatically within the constraints of humans as they actually are, not how you would wish them to be. We have enough of the Procrustean approach from the neo-liberal side.

    Reply
  5. Mark Wood (@MarkWoodSaid)

    The basic system has already been costed, replace the bureaucracy and effects to society from punitive measures. B.I. does not cost extra. My addition is to remove min wage which ads a dynamic for working with present globalist trade.

    Reply
    1. axdouglas Post author

      The whole welfare bill for the UK is around £200bn. Population roughly 64 million. So that’s around £3125 pa/per person. If you’re disabled and can’t work, are you meant to live on that?

      Reply
  6. Raoul

    Replace Basic Income, with Unions in your post, and you should notice why your argument might not very substantial…

    Reply
    1. axdouglas Post author

      Competition is never perfect; you need unions due to theory of the second best. And then you need a price anchor. Simple.

      Reply
  7. J.R. Daniels

    I’m having trouble with Google searches for price anchoring in a macroeconomic context. Do you have any citation of the need for one?

    My guess would be for most basic income advocates (Basic People. How kind of you.), the price anchor is the same as one of their main reasons for advocating a UBI. The same reason a Jobs Guarantee program is not practical in the long term. Automation.

    A worker with a UBI has the means to negotiate her own salary on roughly equal footing for the first time since unions were disbanded for being communist institutions? Fine. The employer will pay the new wage or find someone who will take less. But now the relative cost of investing in a computer or robot that will do her job has gone down. As the technology develops and cheapens, she loses her foothold more and more. But it’s okay, she still has a basic income. And if she wants to work she can work on the kinds of things people do for free or almost free. Or she can be an entrepreneur, and buy some of those robots herself.

    Reply
    1. axdouglas Post author

      Thanks for this. I think the best thing to read on the notion of a price anchor is this. It explains how the government is the monopoly issuer of currency, how (like any monopoly) it sets the price of what it issues (currency) whether it wants to or not, and how it can do this either by fixing the quantity it issues and letting the price float (as currently) or by fixing the price and letting the quantity float (as with a gold standard or with a Job Guarantee). If it does the former it has to maintain a certain level of unemployment: the unfulfilled desire to exchange labour (or anything else) for money. It has to do this so that the demand for money exceeds supply, otherwise the price will move towards 0 (money has no intrinsic utility). In this way unemployment works as the anchor. On the other hand, if it fixes price and floats quantity, then the price of whatever it fixes works as the anchor.

      Now imagine a world with full automation of production and UBI. The government has to buy goods or hire robots in order to provision the public sector. The price it pays for those goods/robots determines the value of money. They are its price anchor. But UBI is part of the price, since the government has to bid against recipients of UBI in order to purchase goods and robots from the producers. If it issues too much money, or fails to collect enough in taxes, the value of its currency falls towards 0. If it issues too little, or taxes too much, people will be unemployed in the sense of wanting a way to earn money and not being able to find one. Automation changes nothing about this.

      Could the government find the right level of UBI/taxation to ensure full employment, defined very generally as a condition in which nobody has anything she’d rather exchange for money without being able to do so? I find it doubtful; Brian Romanchuk does some numbers here for Canada. If the UBI has to be big enough for people to live on, the only way for the government to sustain demand for its currency will be to require very large tax payments from producers. But these high taxes might discourage production, to the point where there isn’t enough actual stuff to sustain everyone’s standard of living. Merely issuing currency units in the UBI won’t help with that. I see no reason to believe that there should happen to be some equilibrium level where UBI is high enough to sustain the standard of living and taxes are high enough to sustain the value of the currency (see Neil W’s comments above).

      Certainly automation doesn’t solve the problem for the government. Any monopoly issuer has to set either quantity or price or both. The ideal is to get to the price and quantity that minimises unemployment (living happily on a UBI doesn’t count, of course) while maintaining price-stability. UBI doesn’t do that automatically, and I suspect that if it’s really a guarantee for a certain standard of living it makes it impossible. The Job Guarantee, by contrast, works by definition: anyone with labour to sell and a preference for money can carry out the exchange – either with the government or with the private sector. Price-stability is maintained by the buffer stock of labour in the Job Guarantee programme.

      Reply
  8. Pingback: Bullshit Jobs and Unemployment | Origin of Specious

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